tv On the Money NBC July 7, 2014 12:30am-1:01am PDT
hi, everyone, welcome to on the money. i'm becky quick. the dow hit 17,000. is this the top or just the beginning? and what does the strong jobs report mean for your money? gm sets a record that it doesn't want. the surprising reason the recalls don't seem to impact their sales and why it may be a good time to shop for a new car. the new trend in office ware is afoot. why sneakers are the new black. but will millennial choices translate into workplace success? interest rates on student loans go up this week but there may be ways you don't know about to get them forgiven. on the money starts right no"on.
look at what is making news. a strong jobs report the month of june. the unemployment rate fell to 6.1%. that was the best number since april of 2008. the economy created 288,000 jobs. that was better than economists had predicted. in fact, numbers for the previous two months were also revised upwards. all of that has pushed the dow above 17,000 in early trading on thursday. during the holiday-shortened week, the s & p 500 hit a fresh all-time high as well and the nasdaq hit a 14-year record. a stunning announcement from jpmorgan chase chairman ceo jamie dimon. he told employees and share holders that he has throat cancer but the 58-year-old dimon says it was caught early, it hasn't spread and it is curable. pending home sales hit an eight-month high in may, another indication that housing is pulling out of its recent slump. the index is based on contracts signed last month and it increased by 6.1%. a strong jobs report, a decent first halfthe year for stocks and bond yields lower than most people expected. so, what does it spell for the
rest of 2014? joining us right now is paul mccully, he is chief economist at pimco and paul, great to see you today. >> good to see you, becky. >> the jobs number was better than a lot of people had been anticipating. were you surprised? >> i was surprised at the precise number, because it was so robust. but in general, i think the jobs report was reflecting a very nice economy. we are healing wonderfully from the crisis of five years ago. and that trend has been in place and we saw it manifest today in spades. so i think the exuberance, the rational exuberance we have seen in the stock market this year was validated. >> when does that translate into something that the fed has to start paying attention to and say, wait a second, this is a strong economy. things are on solid footing. as a result, we need to raise rates? >> i think that will probably happen in 2015. i think the contours of the fed decision first are about
declaring success. over the last five years, there have been a great deal of nattering neighbobs about the fact the fed would not be successful, would not be effective, that they were pushing on a string. so i think the first thing for the fed is simply to say they did their job and did it exceedingly well. and now we have got good job growth, we have got the unemployment rate down, but i don't think they have to be anxious about increasing rates quickly or very much when they do start in 2015, because wages are very -- and we won the war against inflation and i think the fed can actually today just have a big smile as opposed to thinking in terms of behind some mythical curve or something. this is a success story. >> although, look, unemployment is at 6.1%. you love to see job creation. love to see the unemployment rate fall f we fall below 6% in unemployment, crazy that the fed isn't looking a that the and saying maybe we should start to
step things up a little bit. >> i promise you, you be the th looking at it. they want to see the unemployment rate to go down. they have a price stability mandate. they are very mindful of the notion that you can get too low on the unemployment rate and it can generate an inflationary problem, but that is not something that they are wrapped around the axle about now. i think that's why their forward guidance indicates most likely be tightening within the next six to 12 months and i think that's very, very reasonable. the fed's not behind any curve, but they will need to move in time to bring short-term interest rates up off of zero. zero is not normal. so, i think they need to get off of zero, but they don't need to do it quickly and once they do get off of zero, they don't need to go very far. >> the biggest bond house in the country, so let's talk about bonds.
talk about what's happening with treasuries. at this point, a little stunning to see that the ten year is still yielding below 3%. push closer to 2.7% on some of the news from the jobs report but you're still talking about below 3%. not what many people were expecting this year. what happened in the first half and where do you expect yields to wind up this year? >> well, in answer the question of what happened in the first half is i think the marketplace embraced the proposition that when the if i had does tight, and it will in our lifetime, becky, it will tighten, that it will be a very kind and gentle tightening and will likely stop near 2%, not 4%, which was the old normal equilibrium for the fed funds rate. i think the market the bond market, has been pricing in the notion that 2% is the destination, the stopping point for tightening and that implies the rates about a three handle for ten years and we are below that now. i think that's why the marketplace is adjusting back
up. i think bonds are on the rich side of the fair range in the years ahead. i don't think irrational for the marketplace to embrace the new neutral thesis, if i can use the pimco phrase. >> what does that mean in terms of bonds as an investment vehicle? when you hear from retail investors, are you telling them they should go ahead and stay invested in bonds or get invested in bonds and what do you tell them about the stock market? which is the better proposition over the next say five years or so? >> i think the stock market will outperform bonds over the next five years. i'm not looking for a recession any time in the next five years. i think the stock market is fairly valued. i think it's fairly valued to where i think the fed's gonna go. i think the most important thing for stock investors is to recognize you don't get to go to heaven twice for the same good deed. and that's hugely important. human nature is wants to buy high. the marketplace is fairly valued. it is not cheap right now.
but i think it can move higher with continued non-recessionary type of growth over the next five years. with respect to bonds, i think the most important thing for investors is to recognize the coupon on the bond is basically gonna be about what you get. so, big capital gains are not really in store for the bond market. so, in general, i think investors should you can shifting back from duration risk or interest rate risk to spread risk, aiming for income. so, rather than long treasures, you would be thinking in terms of shorter, dated spread product, corporates, mortgages and other spread product. so, i think that bond investors have to be very realistic about the fact that we are at generational lows on interest rates and stock investors can be optimistic, but they have to recognize the market is not cheap. and again, you don't get to go to heaven twice for the same good deed. >> i like that you always have
some great way of putting things. paul, thank you. >> my pleasure. >> talk to you again soon. up next, western the money. gm hits a new milestone. 54 recalls in just six months. can the automaker clean up its act? a look at the embattled car company and what it means for car sales this summer. and later, sneakers are making their debut at the office. why lacing up for work isn't the taboo it once was. as we go to a break right now, take a look at how the stock market ended the week.
much it will pay victims and it will begin accepting claims on august 1st. the question is will this new fund help gm repair its image? joining me right now with more is reuters managing editor, paul ingracia and jessica caldwell from edmonds. thank you for both being here today. >> thank you, becky. >> paul, i would like to start with you. the compensation plan, you think this is the right way to go for gm? >> typically, general motors being the new company since they became out of bankruptcy does not have to compensate victims or families of victims for some of these claims but a public relations disaster for the company. so, they absolutely have to do this. i think one of the big issues here is going to be the fairly short window of time between august 1st and the end of the year when claimants have a chance to file. so, there may you can some complaining about that. there may be some pushback on that really from the families who have been affected by this. >> okay.
so, we will hear more on that. but jessica, while we have been listening about the fund and hearing what's happening, seems just about every week, there are a series of new recalls. soer far the company has recalled 26 million vehicles sold in the united states. they only sold 2.7 million last year. you start to wonder if gm has recalled every car they've ever made. >> i mean, certainly seems this way. i think every week, it seems like there's more and more recalls, that every week, it seems like that's the end of the recall. there's not going to be another one. and then another one comes along and surprises everybody. so i think that we probably haven't seen the end. i think it's safe to say at this point. and it seems like it is going to be an ongoing process in which they are going to continually review the vehicles, own quality process channels and see newer vehicles recalled. i think it is going to not only affect the cars being sold now but also future vehicles as well. >> paul, the thing that stunned me, throughout all these recalls, throughout all the publicity, it hasn't affected their sales at all. they have had super strong sales throughout.
what do you think's happening? >> remarkable. to be honest with you, becky, i just can't explain it. this has been a bad publicity deluge over their products, reliability and safety of their products that few companies have ever seen. i think maybe part of what's going on in the -- if you look back in automotive history, the ford explorer/firestone tires recall of about 12, 13 years ago, more recently, the toyota recall. so, basically, you know, it could be that consumers sort of say, hey this is sort of baked into the system. but i had dinner here in lumden with senior auto executives and another automaker and they are surprised, too and baffled why it hasn't hurt gm sales. >> jessica, you have any thoughts on that? really, it is a head scratcher. >> it definitely is. just, you know, like we said, there's been millions of vehicles recalled. what we are seeing is that, you know, we looked at the chevy cobalt. i think that's kind of been the
poster child of this recall campaign that gm has had this year around looks like not only are more people coming in and trading in cobalts, but more of those people are opting to buy general motors' products. so, you have all these people coming in to get their car fixed and while they are there, they are looking around at the dealership saying, some of these cars are really nice. you think about how far car technology, in-car and safety features and infotain.has come in the past five, ten years, it's definitely has been heads and shoulders above the old products. i think some of these people coming in for recalls are actually leaving with new cars that inevitably helps the general motors' brands. >> paul, the other thing that hung in there is the stock price for gm. this already cost the company about $2.5 billion. the question is how much more will it cost the company and do you think stockholders are right to have hung in there and be thinking maybe the worst is over? >> to again, if you go back in history, car companies rebound on these things, although there's never been one, you know, series of recalls of this
proportion. so, there's got to be some risk baked into the stock but the market has been solid. the dow crossed 17,000. pretty remarkable. the market reacting, you know, to the sales numbers and the sale numbers aren't -- aren't affected so far. you know, one of the ironies about this great improvement of cars, both in terms of the consumer technology and safety features and all that is that these defects that started this whole crisis for general motors is the simplest of parts, it is the ignition switch. >> right. right. >> not some new technology or anything, it is a part that people don't pay any attention to obviously, general motors didn't either. >> jessica, it's not just gm that's had strong sales. car sales overall for most companies have been as strong as they were since before the recession. is this the right time to buy a car for a consumer? >> i mean, it definitely looks like it. i mean, car seams right now are stronger than, you know, we have seen since, you know, 2005/2006
timeframe, almost a decade at this point. and i think if you look out there you have a lot of factors that are helping car shoppers get into cars. and i think low-finance loans is a big one as is leasing, gives you the monthly payment which a lot of people factor into their budget and you know, kind of a consumer-friendly way to figure out if you can afford a car or not. i think with those generous deals out there, a lot of people are opting to buy a car. the annual rate in june was 17 million. we haven't seen that in so long. 16 million was gonna be great, but 17 is even better. >> all right, jessica, paul, thank you both for joining us. great talking to you. >> thanks, becky. up next, we are on the money. casual wear in the workplace, wearing sneakers and jeans is becoming the norm, but does it kill productivity and profits if dress for success still rings true? and later, college students needing loans can expect to rack up even more debt. the hike they may not be expecting and how they can get some relief. by the way, you can find us on facebook, facebook
comfort is trumping style as more and more people wear sneakers at the office a recent survey found that almost half of young adults think it's okay compared to only a third of baby boomers. is that a sign that casual friday will be more like every day? joining us right now with a study the street.com's editor and chief, janet guyian. thanks for being here today.
>> thanks so much for having me. >> so, sneakers at work. you don't mean wearing them on the subway, sticking them in your purse and then walking into the office this is for real? >> no we mean keeping them on all day long and that is becoming more and more acceptable. >> i guess i get it i guess it's more comfortable. but i've been trying to go back and forth, does comfort equal more productivity or allow you to get sloppy and lazy? >> that's very good question and there are two schools of thought about that. there are some people who believe if you're more comfortable in the office, you will be more productive, we see this in a lot of offices, see this in the silicon valley offices with the tech workers, you know, people wear whatever they want to and they feel more comfortable. the idea that they are more productive, they will work late. there is another school of thought that is really, you know, your shoes, your clothes, make your attitude. and there have been some studies that suggest that what you wear does affect your productivity. >> i believe that. it seems like we are almost on a march toward wearing our pajamas into work. >> yes, exactly. >> i don't know if that makes me sound old or female/male type of thing. what did you find?
>> well, there is a female/male aspect to this. more men think it's acceptable to wear sneakers to the office than women. in fact, about 50% of the people that we had surveyed, we surveyed with gfk about 1,000 people over a weekend of results how people feel about these things and found that 50% of the men think it's okay wear sneakers to the office and only about 40% of the women do. and one of the reasons that is that men don't have that many ways to make fashion statements. >> right. >> so they are using casual wear, sneakers, you know, bright red sneakers, wearing them to the office as one way to sort of say, hey, i'm fashionable. >> i just read a story about rick perry, the governor of texas, how guess is hanging up his cowboy boots, he has had orthopedic problems and trading them in for more casual shoes, something that don't have a heel on them. as woman who wears heels, i get that. i get that aspect of it. so maybe part of it is us becoming more accessible, as america ages and we deal with these problems. >> that's true. in our survey, we did show it's
really younger people jumping on this trend, although 70% of people we surveyed say, yes for comfort >> the great news for companies like a nike or somebody who is making this athletic apparel. what stocks might actually benefit from something like this? >> this is why the street did the sur try begin with. we found we were looking at, you know, sales of footwear companies like nike and foot locker and sketchers and noticing that their scales were way up, sales you can invest in benefitting from the trend. >> makes a huge amount of trend, why we see nike on the down now, too? >> exactly. >> janet, thank you so much for coming in today. >> thank you so much for having me. up next "on the money," a look at the news for the week ahead. and while interest rates are at record lows, college student are seeing their rates on federal loans rise. how much more will they be paying for that degree?
for more on our show and our guests go to our website, otm.cnbc.com and follow us on twitter on the money. here are the stories coming up may impact your money this week. earnings season kicks off with alcoa, family dollars and wells fargo reports results. on tuesday the consumer credit report is due. tuesday, the second state to legalize recreational pot, washington, will begin sales. on wednesday, we get the minutes from the fed reserve's open market committee meeting in june. thursday is the sixth anniversary of apple's app
store. and friday is the deadline for creditors to vote on detroit's bankruptcy plan. get ready to pay more for your student loans. an interest rate hike went into effect this week for federal student loans for new borrowers, but there may be a way to get those loans forgiven or at least reduced. many people don't know about those. personal if correspondent sharon he wereson is here with details on this. first of all what about the hike? >> the hike is gonna cost borrowers a lot more money. when looking at the biggest loan that federal loan people have is stafford loan, talking about a rate that's going to go up as of july 1st to over 4.5%. taking a look at for graduate students, their loans are going to go up as well, we are looking at those loans going up to over 5%, from 5% to a little over 6%. rates on plus loans for graduates and parents, these are the most expensive federal loans, going to jump to over 7%. now, these new are for loans distributed between july 1st and june 30, 2015 and going to be fixed for the life of the loan, but definitely a hike. >> that seems crazy at a time
where you can actually get a 30-year mortgage on a house for 4% or less. how much is that going to mean in terms of monthly pages? >> in terms of monthly pages, about $4 more per month for every $10,000 that you're borrowing. that's based on a ten-year repayment plan. some say $4 extra a month, it's gonna add up, when you're talking about new loans coming out, you know, for undergrads and then these rates likely to continue to increase. the maximum rate cap that's mandated is 10.5%. they could continue to rise until we get to that level. >> it's a huge problem for students getting out with hundreds of thousands of dollars in debt. that's massive burden. is there anything they can do to try to get a little relief? >> one of the things the obama administration is really trying to encourage people to pay attention to are some of the new income-driven repayment plans that they have set out there. yes, they are harping on people, some of them to get good jobs, high-paying jobs and so what this plan does was allow to you pay back your loan based on your income.
and it's capped at 10% of your income and it can be on a sliding scale, depending on what you make. then after 20 years of paying on time, the balance can be forgiven if you go into a public sector job, your loan balance may be forgiven. >> all right, sharon, thank you so much. >> sure. >> sharon epperson. that's the show for today. i'm becky quick. thank you so much for joining me. next week, the business of beer. brooklyn brewery's co-founder and president, steve hendy, will be here. each week, keep it here. we are "on the money." have a great one, everybody. see you next weekend.
♪ ♪ extra, extra this weekend on "extra," our favorite interviews of the year. first lady michelle obama grilling mario. >> being a good husband? >> yes. >> from her own marriage to life after the white house. >> do you plan to move back home to chicago when it's done? >> plus, can mario keep up doing zumba with mrs. o.? plus, sarah palin going rogue again. >> not only would i dunk those terrorists once, i'd dunk them twice. >> mario's exclusive at home in alaska tackling the headlines from donald sterling to hillary clinton. >> do you think the fact that she's going to be a grandmother